Cisco, 3Com delay home network products

Cisco Systems and 3Com have delayed plans to ship a high-end home appliance that connects consumer electronic devices to the Internet, a sign that the home networking market isn't progressing as fast as hoped.

Like many tech companies, 3Com (coms)
and Cisco (csco) are building a new home appliances called "residential gateways," which allow consumers to securely connect an array of electronic devices such as PCs, appliances and security systems to the Net.

Among other promises, the devices have been touted as allowing for numerous advanced services, such as video-on-demand, the ability to easily add new phone lines, and the capability to monitor and manage energy usage.

But because the home networking market is still emerging, 3Com and Cisco have postponed plans for a high-end residential gateway, company representatives said Monday.

The gateway is a crucial component to the much-hyped networked home, in which people can supposedly do everything from starting their dishwashers via the Net to downloading movies on demand. 3Com and Cisco have been two of the concept's biggest boosters.

But so far, consumers who have created home networks have been interested in more mundane tasks, such as sharing printers and other peripherals.

The networking giants will continue to develop the high-end home products, but will not release them anytime soon. Rather, they plan to focus on basic devices that allow people to network their PCs to share data or a high-speed Internet connection. These early devices will not deliver many of the features that their higher-end successors will eventually offer.

3Com and Cisco representatives said they revamped their product strategies during the past six months because the market for home networking hasn't grown as fast as they had hoped.

"Frankly, six months ago, we all thought this market would happen sooner," said Julie Shimer, vice president and general manager of 3Com's residential connectivity group. "It's just now starting to take off like we thought it would a year ago."

Cisco made a big marketing push for its residential gateway in June, saying a $500 device would be available early this year. A Cisco representative said Monday that the networking giant has put those product plans on hold.

"We're excited about the home networking market," Cisco spokeswoman Robyn Jenkins said, noting that Cisco sells wireless home networking kits. "But we've pushed back the (high-end gateway) and we don't have a new revised timeline."

Home networking is still in its infancy, but analysts expect the market to take off in coming years as more consumers get high-speed Net access and want to connect their computers, appliances and electronic devices.

Most home networking products today are simple kits that allow people to connect multiple PCs so they can share a single Net connection, swap files, and share printers and other peripherals. Analysts say such products have grown in popularity and are now selling well, particularly wireless networking kits.

But in the future, tech companies believe the more complex residential gateway is needed to act as the central device in the home that connects a broader array of products to the Net.

3Com, for example, has plans for a high-end gateway that offers video-on-demand and the ability to easily make phone calls over the Internet. But because consumer demand is not yet strong enough for such services, the company is releasing simpler gateways first. At the Consumer Electronics Show (CES) in Las Vegas this week, 3Com began selling a new wireless add-on to cable and digital subscriber line (DSL) modems that will allow people to link their PCs.

At CES, companies such as TV set-top box makers Motorola and Scientific-Atlantic, and start-ups such as IBM spinoff Home Director, Cayman Systems, 2Wire and Coactive Networks demonstrated their line of residential gateway products. While Home Director showed off new software that allows people to create more phone lines in the home and the ability to stream music throughout the house, most are taking the same strategy as 3Com and Cisco--focusing on lower-end devices first, analysts said.

Tech companies and analysts expect the residential gateway market to eventually explode. Cisco and 3Com blame home networking's slow emergence to the slower-than-expected adoption of high-speed Internet access through cable or DSL modems. Phone companies that offer DSL, for example, still suffer from persistent complaints about long waits for installation.

Still, market research company Parks Associates expects the gateway market will grow from $1.7 billion in revenue this year to $2.9 billion by 2005. Parks Associates analyst Kurt Scherf expects high-end residential gateways won't take off until 2003, when service providers will need to offer new services such as video-on-demand to differentiate themselves and make more money.

"The vision is taking longer than expected, but service providers are currently making good profit margins with broadband Internet access. That's probably enough for a lot of them to get by on now," Scherf said. "When the monthly (broadband Internet) rates drop below $30, you'll see more service providers bundling home networking services."

For example, Sprint, which announced plans Tuesday to offer simple home networking kits for its high-speed Net access consumers in late January and early February, plans to offer new services using high-end residential gateways in the next few years. The company late this year will begin testing the ability to download movies over the Net, said Greg Crosby, Sprint's vice president of broadband product management.

Most communications carriers are too busy building their network infrastructure and too swamped with installing high-speed Net access for consumers to be concerned with home networking, said 3Com's Shimer.

3Com and Cisco representatives declined to comment on when they may release high-end residential gateways. But Shimer said it may be a year or two before the home networking market is mature enough for consumers to demand high-end residential gateways.

Shimer said the home networking market--and the resulting residential gateway market--will eventually develop into a big moneymaker for tech companies.
"The market will still happen, but it will take a little more patience," she said. "We'll create it in bite-sized pieces."